Freebies: what business needs to know about giving stuff away

From time to time, you’ve seen companies giving away their products. Lively youngsters with trays of food or drink or small items move around large gatherings or station themselves at select busy spots and, much to the pleasure of the passers-by, give away their free samples. How does this make sense in business terms?

One way to look at the practice of giving away free products is to understand that while it might feel like a free gift for the customer, from the point of view of the producer, this kind of activity is essentially a marketing one and it comes in to the business plan not as a free giveaway, but as part of the advertising budget. This is the explanation Professor Jean-Pierre Dube gives of an activity that is far from unique to today’s economy. Dube, a professor at the Booth School of Business, Chicago, writes, ‘giving things away is definitely a form of marketing… this is an investment the firm makes in anticipation of receiving the reward in the future.’

A good case study of a business in Europe that occasionally promotes itself in this way is Propercorn, a company that makes popcorn. At London Fashion week in the autumn of 2016, Propercorn gave away 30,000 sample packets. And they have been consistent about targeting this event. The reason? ‘Positioning popcorn outside of traditional snack circles,’ explains a spokesperson, ‘helps us remain fresh and part of this exciting cultural dialogue. It’s less about immediate increase in sales and more about getting our product in the hands of people who will excitedly and personally engage in our brand and story.’

And here’s the rub. Before you rush to invest in a business that is taking this original approach to building a custom base, you have to ask a key question. Has the business correctly identified the way in which free samples will act as a path to greater sales in the future? According to Enrico Trevisan, a behavioural economist, there are three types of strategic thinking behind a free giveaway: ‘up-selling’, cross-selling’ and ‘future-selling’.

Up-selling is very common online and it is the practice of giving away a part of a product, e.g. a game, with the plan being to draw users in to purchasing the full version. Cross-selling is the aim of companies who are willing to lose money on an initial product on the basis that follow-on sales of associated products will prove the investment worthwhile. We could think here of cheap printers but expensive inks. And future-selling is simply based on the product being so attractive that once tried, people will want more of it.

A business that has a sure fire hit, product wise, might want to avail of this marketing strategy. But let’s not get carried away by the sight of Innocent giving away 500,000 free products at music festivals and marathons. Like all advertising, the effectiveness of freebies for business depends on a great many factors, above all, understanding the target audience and how to best get a ‘wow’ factor response from them.

William R. Feins , freelance journalist from London, UK; he received his B.A. degree in Economics and his Masters in Sociology. William has always been interested in the mechanics of business and the inspiration of original thinkers, and firmly believes that the former can’t succeed without the latter. In his spare time, he enjoys the ridiculous spectacle of watching table tennis on a big screen (preferably at a pub) and reading weighty tomes about World War II.

This was an interesting read – I see these types of ‘freebies’ being given away all the time in London, and often wonder what the end point is in terms on increasing sales. I never knew about ‘cross-selling’, so that was good to read about!